“Besides, says George Friedman, of Geopolitical Futures, “Who wants to invest in oilfields so easily bombed by Iran?” Even the Trump Administration would think hard before rushing to Riyadh’s aid.
27 Feb 2018 | Christopher Helman | Forbes
In Search Of Investors, Saudi Arabia’s Crown Prince Is Coming To America
Mohammed bin Salman bin Abdulaziz al Saud, the Crown Prince of Saudi Arabia, will be leaving his kingdom next month for a three-week charm tour. His agenda hasn’t yet been revealed, but sources say MbS (as he’s known) will start his tour March 7 in London, then head to New York, Washington, San Francisco and maybe even Texas.
It was supposed to be his father, King Salman bin Abdulaziz al Saud, 82, visiting the United States, as agreed in a phone call between him and President Donald Trump last September. But the monarch has allowed himself to be sidelined, to underscore that his 32-year-old crown prince is the one running the show.
Prince Mohammed is handsome, charismatic and sports a luxurious beard. He’s imposing, like his 6’4” grandfather, Ibn Saud, the founding King. The last time the prince came to the U.S., in 2016, he traded his traditional robes for a blazer and blue jeans and test drove the latest virtual reality gear with his Facebook pal Mark Zuckerberg.
At the White House, we can expect Trump and MbS to yuck it up, recalling the fun they had last May when Trump made his first-year pilgrimage to the Kingdom. He joined with King Salman, Prince Mohammed and Rex Tillerson to perform the traditional Bedouin sword dance.
Later they visited the Saudis’ new Global Center for Combating Extremist Ideology and posed for a striking picture, their hands reaching out together to grasp a mysterious glowing orb.
The highlight for Trump: $350 billion in deals reached between the kingdom and the U.S., including $100 billion or so in arms sales and a $20 billion allocation to Blackstone’s private equity fund targeting American infrastructure. Blackstone CEO Stephen Schwarzman recently lauded the “extraordinary” pace of Saudi reforms under the crown prince; “It’s happening so fast and is so bold.”
A little bit of “M.A.G.A.” virtue signaling will work wonders. But His Royal Highness is not coming with the intention of investing in America, rather in hopes of wooing western investors to inject capital into Saudi Arabia. “His message will be that Saudi is a safe place to do business,” says Kristian Coates Ulrichsen, a Middle East scholar with Rice University’s Baker Institute.
His ambitious Vision 2030 plan aims to help diversify the kingdom away from oil (before it’s too late) with $500 billion or so of investments like a new high-tech city called Neom; a Red Sea luxury resort where women will be allowed to wear bikinis; and an entertainment city with a Six Flags theme park. Alcohol remains prohibited kingdom-wide.
What does MbS need American capital for? Over the past 50 years Saudi Arabia has become synonymous with endless wealth. But they’re no longer loaded. Since oil prices collapsed in 2014 the Saudis have had to burn through $200 billion of their $700 billion in foreign reserves in order to make ends meet.
Austerity measures included cuts to the salaries of government workers, subsidies slashed for gasoline and electric power, and the imposition of a value-added-tax. Another source of funds: state oil monopoly Saudi Aramco. The Prince in 2016 proposed an Aramco IPO — at a $2 trillion valuation.
As thrilling as it would be for Trump and MbS to announce at a joint press conference that Aramco will be listed on the NYSE, it’s not going to happen. The grief of satisfying the requirements of a U.S. or U.K. listing are simply too stringent.
Aramco would be wading into a minefield on the issues of corporate governance, transparency, gender equity, pay equity, sustainability, and carbon emissions. The company would also risk opening itself up further to lawsuits brought by the families of 9/11 victims. Investors are already unimpressed with the returns from publicly listed state-controlled oil companies like Petrobras, Rosneft and Petrochina. Do they need another?
Besides, says George Friedman, of Geopolitical Futures, “Who wants to invest in oilfields so easily bombed by Iran?” Even the Trump Administration would think hard before rushing to Riyadh’s aid. “It’s a question of what Congress would agree to. The U.S. has been at war for 16 years, and this would be a war to defend Muslims,” says Friedman. MbS does have options.
The most likely outcome, according to sources, is a local listing of Aramco on the Tadawul, plus negotiated private placements from strategic partners like Sinopec or Rosneft. The Chinese company has been a partner with Aramco since 2012 on the Yanbu export refinery.
MbS has made clear where he’d like to reinvest any Aramco payout. Last fall MbS hosted an Riyadh confab dubbed Davos in the Desert. The 3,500 guests includedBlackstone’s Schwarzman, Richard Branson, Peter Thiel, Treasury Secretary Steve Mnuchin, Apollo Group’s Leon Black, and Masayoshi Son, founder of Japan’s SoftBank group — to which MbS in 2016 committed $45 billion for investments in the likes of WeWork, SoFi and Uber.
The most bizarre development was MbS granting Saudi citizenship to an artificially intelligent android named Sophia. He wants robotics and A.I. to be the cornerstone of a new $500 billion city called Neom that he has envisioned for the sparsely inhabited Red Sea coast near Egypt’s Sharm el Sheikh resort area.
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